Oversight for Giannoulias bank

Senate hopeful's family business told to raise cash

January 28, 2010|By John Chase and Becky Yerak, TRIBUNE REPORTERS

The family bank that helped launch U.S. Senate candidate Alexi Giannoulias' political career agreed to tougher government oversight as part of a turn-around plan announced Wednesday, less than a week before the primary election.

Broadway Bank, where Giannoulias worked for his father before entering politics, signed a consent order with federal and state banking regulators to raise millions of dollars in capital, restrict dividends and hire an outside firm to assess the bank's top management. The move indicated regulators have serious concerns about the bank's health.

The agreement comes at an inopportune time for Giannoulias, who touted his experience as the bank's chief lending officer in getting elected state treasurer in 2006. A Tribune poll this week showed Giannoulias leading Cheryle Jackson and David Hoffman in the race for Tuesday's Democratic primary for U.S. Senate.

Jackson called on Giannoulias to withdraw from the race. Hoffman's campaign said the news "provides further evidence of what a disaster Mr. Giannoulias would be as the Democratic nominee for Senate."

Both cited payouts of at least $70 million Broadway Bank made in recent years to Giannoulias and other family members -- $2.5 million of which Giannoulias himself received.

Giannoulias dismissed the notion the $70 million had anything to do with the bank's financial troubles. He said those payouts were triggered by the 2006 death of his father, Alexis, who founded the bank and whose will called for estate and income taxes to be paid with dividend payments from the sale of Broadway shares. His family still owns the bank, which is run by one of his brothers.

"Community lenders like Broadway Bank do a lot of their business in the real estate market and ... real estate dropped by 30 to 40 percent," he said. "Community banks are struggling. and Broadway Bank is no exception. "

The bank was described as "undercapitalized" in the consent order from the Federal Deposit Insurance Corp. The order requires the bank to raise funds in order to fix the problem.

In addition, the bank must add at least $19 million to its reserves for losses from various loans, according to the order, which is being enforced by the Illinois Department of Financial and Professional Regulation and the FDIC.

Regulators said the bank could increase capital through contributions from bank directors or shareholders. Asked if he would put in any of his own money for the bank, Giannoulias said bank officials would "look at every option."

The Tribune has reported Broadway was one of nearly 40 Chicago-area banks that, as of Sept. 30, had seriously delinquent loans and foreclosed real estate on their books that exceed or come close to their levels of loan reserves plus core capital.